French officials to visit India to rescue stalled Rafale jet deal

A Dassault Rafale combat aircraft, which has been selected by the Indian Air Force for purchase, performs during the inauguration ceremony of the "Aero India 2013" at Yelahanka air force station on the outskirts of Bangalore February 6, 2013. REUTERS/Stringer/Files

NEW DELHI (Reuters) - A French delegation will visit New Delhi this month to salvage an agreement to supply 126 Rafale fighter jets to the Indian Air Force that has hit a snag over the local assembly of the planes, threatening to derail one of the world’s biggest defence deals.

India is insisting that France’s Dassault Aviation take full responsibility for the production of the aircraft at a state-run facility in Bangalore under the 2012 bid offer, Indian defence ministry officials said.

France has said it will help Hindustan Aeronautics Ltd stick to delivery schedules, but that it cannot give guarantees for production of the aircraft made at a facility over which it has no administrative or expert control.

Military experts say the deal could cost India $20 billion, double the original estimate, because of the benchmarking of aircraft prices and a roughly 5 percent annual cost increase.

The Rafale fighter beat the Swedish Gripen, the Russian MiG-35, and the U.S.-built F-18 and F-16 and finally the Eurofighter in a decade-long selection process for a new Indian multi-role combat aircraft, as Dassault was the lowest bidder on up-front and lifecycle costs over 40 years.

But three years on, the sides are far from signing the contract and an Indian defence source said price negotiations were on hold until the issue of licensed production was resolved in line with the original request for proposals (RFP) floated by the Indian defence ministry.

“We are saying that the RFP has to be honoured totally, there can’t be deviations,” said the source.

“Once the RFP aspects are done, only then can we sit down for price negotiations,” the source added.

An “empowered” delegation from France, with the authority to make decisions on key points rather than refer them back to Paris, is expected to arrive shortly to work on the disputed issues, according to the source.

Dassault and the French defence ministry were not immediately available for comment.

For the French, the deal would be a major boost for domestic defence manufacturing, with the first 18 Rafale planes built in France and the remaining 108 produced in India.

For the Indian Air Force, the planes are critical to arrest a decline in its operational preparedness, already down to 25 active fighter squadrons compared with a government approved strength of 42.

Half of the operational fleet is Mig-21 and MiG-27 planes due to retire beginning this year until 2024, a parliamentary defence committee said in a report last month, stressing the need for an early induction of new combat planes.

“The credibility of India (as an arms buyer) is already pretty shaky and it’s going to get shakier (if they cancel the Rafale deal),” said Rahul Bedi, a defence analyst at IHS Jane‘s.

“It would be a big blow to the armed forces. The armed forces have been banking on the Rafale for a long time. They have said there is no plan B.”